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Monday, March 15, 2010

China "Officially" Largest Treasury Holder

Last month Bloomberg reported:

China’s ownership of U.S. government debt fell in December by the most since 2000, allowing Japan to regain the position as the largest foreign holder of Treasury securities. Japan’s holdings rose 1.5 percent in December to $768.8 billion while China’s dropped 4.3 percent to $755.4 billion, Treasury Department figures today showed. China allowed its short-term Treasury bills to mature and replaced them with a smaller amount of longer-term notes and bonds, the data showed.
As I countered last month:

So (most of / some of?) these purchases by the United Kingdom were likely on behalf of China.
It looks like a portion of the figures were revised in the latest release.



China's total holdings of Treasuries is now listed at $889 billion, compared to $765 billion for the Japanese.

So China is still THE major player... BUT if they decided to reduce this dominance, Paul Krugman makes the case that it would not be a bad thing given the current situation.

The US private sector has gone from being a huge net borrower to being a net lender; meanwhile, government borrowing has surged, but not enough to offset the private plunge. As a nation, our dependence on foreign loans is way down; the surging deficit is, in effect, being domestically financed.

The bottom line in all this is that we don’t need the Chinese to keep interest rates down. If they decide to pull back, what they’re basically doing is selling dollars and buying other currencies — and that’s actually an expansionary policy for the United States, just as selling shekels and buying other currencies was an expansionary policy for Israel (it doesn’t matter who does it!).

Source: Treasury